The face-off between Reliance Industries Limited (RIL) and Comptroller and Auditor General (CAG) seems to have touched a new peak with a seven-member team from the autonomous audit body unsuccessfully trying to access the country's one of the largest conglomerates' books at its Mumbai office for about three weeks, sources in the petroleum ministry told Headlines Today.

According to sources, the team of auditors has been adamant on going through the sudden 290 per cent jump in costs incurred over the RIL's KG D6 project for natural gas extraction . However, Reliance has also been sticking to its guns saying the CAG's mandate only goes as far as conducting a financial audit.

While the Mukesh Ambani-led RIL has been insisting that this was specified in its agreement with the petroleum ministry and that the CAG had no right to breach it, the audit body claimed that it was being thwarted from carrying out a full examination of the company's books.

Sources in the petroleum ministry told Headlines Today that for the last three weeks the seven-member audit team has been twiddling its thumbs at RIL's Navi Mumbai head office. However, all they have been provided by RIL so far are the audited accounts which are already available in public domain.

CAG is particularly interested in the huge cost escalation in the KG D6 project over a period of just two years. RIL, in turn, has been challenging the scope of audit.

Documents available with Headlines Today show that RIL has raised fresh objections about the nature and objectives of the statutory audit. In a letter dated January 16, addressed to CAG and Ministry of Petroleum and Natural Gas, RIL has sought certain confirmations from the government.

The RIL letter says:

1. CAG would conduct audit as a representative of government of India as per the terms of the contract between RIL and petroleum ministry.

2. CAG would not re-audit previous years, that is the period from 2003-04 to 2007-08. (The implication of RIL's fresh demand is that CAG cannot question logic of its high-cost procurements.)

3. CAG would not make backward linkages for financial audit of 2008-09 to 2011-12. (It means the auditor cannot co-relate the costs incurred with expenses of previous years.

4. RIL insists the financial audit would not be a propriety audit. (It translates to the fact that CAG cannot comment on wasteful expenditure, if any.)

CAG replies

The CAG wrote back to RIL saying, "Audit should extend to verification whether the costs depicted including that on high value procurements are correctly determined through a transparent and competitive process. Therefore financial audit would involve propriety audit as well."

The current contract between the government and RIL is designed such that the more capital intensive the project, the lower the government's share of profit. Several government committees, like Ashok Chawla committee, have observed that operators like Reliance have no incentive to reduce capital expenditure.